Q&A by Don Bright
THE USE OF PIVOTS
I am trying to learn more about technical
analysis and trading in general.
I am getting better, I think, but would
like to have a decent explanation of
pivot points. I see them on various
websites, including yours, but I donít
know how to use them. Can you help?
Iím glad you have decided to learn
more about technical analysis, and glad
that youíre reading the best magazine in
the field, Technical Analysis of Stocks
& Commodities. Now, letís discuss
I post two primary factors every day to
my Daily Trading Info page at Stocktrading.
com. One is the daily fair value (FV)
numbers. This number, provided by my
friend Hank Camp (www.programtrading.
com), helps us in two ways. In the
premarket, we can calculate where the
market will open ó up or down ó and
by about how much. We take the closing
price of the S&P 500 (SPX on my monitor)
and subtract the FV number to give
us what is called parity. Parity is where
the market would open if everything
were flat from the previous day, which
rarely happens. We then subtract the actual
number of S&P futures contracts. If
the S&P futures indicate that the market
is opening down eight SPX points, then,
based on this information, we know that
we will place opening-only orders on
the buy side at predetermined pricing.
It is similar if the market is opening
up, except we sell short, counting on a
retracement in both instances.
The pivot points that we use are the
same levels used by the exchange floor
traders and other professional futures
traders. These levels tend to act as caution
signs or small support & resistance levels. These levels are presented as
primary pivot support levels 1,2, and 3,
and resistance levels 1, 2, and 3. These
levels are calculated using the previous
dayís high, low, and close numbers.
Here is an example of how they can